ACG 3024 – Accounting for Non-Financial Majors
Homework Portfolio Study Guide
These are similar questions with the answers to help guide you when preparing the Homework Portfolio that you will upload to the Dropbox tab labeled Homework Portfolio.
#1 Preppy Co. makes and sells a single product. The current selling price is $35 per unit. Variable costs are
$20 per unit and fixed expenses total $80,000 per month. Sales volume for July totaled 10,000 units. Page 451-454,
and page 458-461
(a) Calculate the operating income for July. Use the Contribution Margin Format
Revenues (10,000 units x35=350,000) $350,000
Variable Expense (10,000 units x20=200,000) - 200,000
Contribution Margin 150,000
Fixed Expenses - 80,000
Operating Income (loss) $70,000
(b) Calculate the break-even point in units sold and break-even total revenues.
First: Calculate Contribution Margin per Unit: (Revenues per Unit – Variable Expense per Unit)
(Although we are given the per unit information in this problem, here is how you would calculate it if it were not given.)
Revenues per unit- $350,000/10,000 units = $35 per unit
Variable Expense per unit - $200,000/10,000 units = $20 per unit
Contribution Margin per unit = Revenues per Unit – Variable Expense per Unit
Contribution Margin per unit = $35 –$20 = $15
Second: Calculate break-even points in units: (Fixed Expenses/Contribution Margin per Unit)
(Note: you must round to whole units)
= $80,000/$15 = 5,333 units
Third: Calculate contribution margin ratio (Contribution per unit / Revenues per unit)
$15/$35 =.428 cm ratio
Finally: Calculate break-even total revenues: (Fixed Expenses/Contribution Margin Ratio)
$80,000/.428 = $186,916.89
#2 George's Garage incurred the following costs during May: Page 501-502
Raw Material $35,000
Direct labor 100,000
Manufacturing OH 50,000
Selling Expense 34,000
Administrative Expense 21,000
Interest Expense 10,000
Finished Goods Inventory May 1 1,000
Finished Goods Inventory May 31 3,500
during the month, 5,000 units of product were manufactured and 4,000 units of product were sold. On May 1, George's carried no Raw Materials inventories.
(a.) Calculate the cost of goods manufactured during May and the average cost per unit of product manufactured.
Raw materials:
Raw Material Inventory, May 1 $0
Purchases during May 35,000
Raw Materials available for use 35,000
*Less: Raw Material Inventory May 31 -7,000 (be careful here do not use finished goods information)
Cost of Raw Material used 28,000
Direct Labor cost incurred in May 100,000
Manufacturing OH applied during May 50,000
Total manufacturing Costs incurred during May $178,000
Average Cost per Unit $178,000/5,000 units manufactured = $35.60
*Ending Raw Material inventory is calculated 5,000 units produced and 4,000 sold = 1,000 units is remaining in ending inventory (5,000 -4,000=1,000)
$35,000/5,000 = $7 x 1,000 units = $7,000 (This is the value of the 1,000 units in ending inventory on May 31st.)
Problem 2 continued
(b.) Calculate the cost of goods sold during May.
Beginning Finished Goods Inventory, May 1 $1,000
Cost of Manufactured 178,000
Cost of goods available for sale $179,000
Less: ending Finished Goods Inventory, May 31 -3,500
Cost of Goods Sold $175,500
#3 Dominic's, Inc. had actual sales for January and February and forecasted sales for March, April, May and
June as follows: Page 543
Actual:
January $152,000
February $208,000
Forecast:
March $205,000
April $198,000
May $220,000
June $205,000
Based on company experience, it is estimated that 25 percent of a month's sales are collected in the month of sale, 50 percent of the prior month’s sales, and 15 percent of the second prior months sales. Calculate the estimated cash collections for March, April, and May.
March Collections April Collection May Collections
January 152,000 x 15% $22,800
February 208,000 x 50% $104,000 February 208,000 x 15% $31,200
March 205,000 x 25% $51,250 March 205,000 x 50% $102,500 March 205,000 x 15% $30,750
April 198,000 x 25% $49,500 April 198,000 x 50% $99,000
May 220,000 x 25% $55,000
March April May
Total $178,050 $183,200 $184,750
#4 The standards (budgets) for one case of Peardrax are: Page 575, 580, & 581
Direct materials (Raw Material) -based on 2,900 cases 7 lbs@ 3.60/lb
Direct labor -based on 2,900 cases 3 hrs @ $15.50/hr
Variable Overhead -based on 2,900 cases 2 hrs @ $5.50/hr
During the week ended June 7 the following activity took place:
Actual
1) 5,120 machine hours were worked;
2) 23,400 lbs. of raw material (direct material) were purchased for inventory at a total cost of $79,560;
3) 3,100 cases of finished product were produced;
4) 22,650 lbs. of raw material (direct material) were used;
5) 10,260 labor hours were worked at an average rate of $15.10 per hour;
6) $26,774 actual variable overhead costs were incurred and 2 hours of variable overhead hours.
Calculate each of the following:
Make sure you indicate whether the variance is favorable or unfavorable. Variances are ALWAYS stated in
dollar amounts.
A) Flexible Budget
B) Price variance for raw materials purchased
C) Raw materials usage variance
D) Direct labor rate variance
E) Direct labor efficiency variance
F) Variable overhead spending variance
G) Variable overhead efficiency variance
Step 1: Calculate the Flexible Budget:
Standards (Budget) Standards (Budget) Flexed
DM – 2,900 Cases x 7 lbs = 20,300 lb x $3.60 = $73,080 DM – 3,100 Cases x 7 lbs = 21,700 lb x $3.60 = $78,120
DL – 2,900 Cases x 3 hrs = 8,700 hrs x $15.50 = $134,850 DL – 3,100 Cases x 3 hrs = 9,300 hrs x $15.50 = $144,150
VOH –2,900 Cases x 2 hrs = 5,800 hrs x $5.50 = $31,900 VOH –3,100 Cases x 2 hrs =6,200 hrs x $5.50 = $34,100
Actual -
DM -$79,560 / 23,400 = $3.40 x 22,650 lbs = $77,010
DL -10,260 x $15.10 = $154,926
VOH-$26,774 / 6,200 (3,100 cases x 2hrs) = $4.32
A) Flexible Budget – “the budget allowance for variable costs should be flexed to show the costs that should have been incurred for the level of activity actually experienced”. Page 576
Budget / Actual / Variance / Flex Budget / Actual / VarianceRaw Materials / $73,080 / $77,010 / $3,930 Unfavorable / $78,120 / $77,010 / $1,110 favorable
Direct Labor / $134,850 / $154,926 / $20,076 unfavorable / $144,150 / $154,926 / $10,776 unfavorable
Variance OH / $31,900 / $26,774 / $5,126favorable / $34,100 / $26,774 / $7,326 favorable
Total / $239,830 / $258,710 / $18,880 unfavorable / $256,370 / $258,710 / $2,340 unfavorable
Step 2: Calculate the following Variances:
Quantity Variance = (standard quantity allowed- actual quantity used) x standard cost per unit - Page 580
Cost per unit of input variance = (standard cost per unit – actual cost per unit) x actual quantity used – Page 581
(Do not use the Flex Budget amounts for B-G)
B) Price Variance for raw materials purchased = ($3.60 - $3.40) x 22,650 = $4,530 favorable (cost per unit of input variance)
C) Raw materials usage variance= (20,300 – 22,650) x $3.60 = $8,460 unfavorable (quantity variance)
D) Direct Labor rate variance= ($15.50 - $15.10) x 10,260 = $4,104 favorable (cost per unit of input variance)
E) Direct labor efficiency variance= (8,700- 10,260) x $15.50 = $24,180 unfavorable (quantity variance)
F) Variable overhead spending variance= ($5.50 - $4.32) x 10,260 = $12,106 favorable (cost per unit of input variance)
G) Variable overheadefficiency variance= (5,800 - 5,120) x $5.50= $3,740 favorable (quantity variance)
#5 Marshall, Inc., produces three products but weekly demand for the three products exceeds the available amount of machine time. Following is information about each product: Page 624
Product A Product B Product C
Contribution margin per unit $450 $500 $250
Machine hours per unit 1.5 2 1.25
Weekly demand units 320 300 500
Determine how many units each of Product A, Product B, and Product C that Marshall, Inc., should
Produce each week assuming 1,000 hours of available machine time.
First calculate contribution margin (cm) per unit in dollars /machine hours to get cm per unit in hours
Product A = $450/1.5 = $300 (Product A’s contribution margin is $300 per unit when machine hours needed are considered.)
Product B = $500/2=$250 (Product B’s contribution margin is $250 per unit when machine hours needed are considered.)
Product C = $250/1.25=$200 (Product C’s contribution margin is $200 per unit when machine hours needed are considered.)
Next determine which product has the greatest contribution margin per hour.
Product A has the greatest CM per hour than Product B or C when machine hours needed are considered.
Then determine (based on weekly demand) which product should be produced first. If there is residual machine time left, then produce the product with the next best contribution margin per hour until all the available machine hours have been used. In this problem there is 1,000 machine hours available.
Product A - 320 (weekly demand) x 1.5 hrs (machine hours per unit) = 480 hrs of machine time needed to produce at this demand
Product B- 300(weekly demand) x 2hrs (machine hours per unit) = 600 hrs of machine time needed to produce at this demand
Product C - 500 (weekly demand) x 1.25hrs (machine hours per unit) = 625 hrs of machine time needed to produce at this demand
Problem Answer:
Total Machine Hours available 1,000
Highest Product CM/per machine hour - 480 (Product A-all of demand is met)
Machine hours available to use in production 520 (machine hours to allocate to another product)
Next highest product cm/per machine hour - 520 (Product B- only 520 hours of demand is met)
Machine hours available to use in production 0 (all machine hours have been utilized)
First use the 480 hours of weekly demand for Product A, then use 520 hours of weekly demand of Product B to total 1000 machine hours, which are available. Note: Product B’s total demand is not met (only 520 hours) and none of product C’s demand is met. This is due to the limited machine time available to produce products.